DoD hunting for value, innovation not just lowest price

The Defense Department is moving away from lowest price, technically acceptable policies and aiming for more than “acceptable” acquisition services.

Even with looming sequestration stretching DoD financially, Frank Kendall, undersecretary of Defense for acquisition, technology and logistics, said at AFCEA’s Defense Acquisition Symposium Tuesday the department must incentivize better performance and services as well as negotiate lower prices.

“We ought to give industry a reason to give a better product if they can do so cost-effectively,” Kendall said.

He said agencies should be asking how much they are willing to pay for better value, not only asking for the best price. Kendall said DoD should explore product options beyond their cost-efficiency efforts under the Better Buying Power initiatives, and look at the real value that promotes innovation and better performance.

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Under the Better Buying Power version 3 coming in a few months, Kendall said DoD will address best value thresholds where vendors will better understand what minimum and affordable innovation means.

“It allows industry to make informed judgments about what to bid to us. It gives industry a reason to bid above the threshold, to give us more performance, to be innovative,” Kendall said.

He said companies should receive credit for better performance and innovation, not only for lowest prices.

Kendall said the department took complaints seriously about LPTA not working as outlined in Better Buying Power 2.0 — the most recent attempt by DoD to improve its acquisition processes.

Of course, price remains an important factor when it comes to DoD’s acquisition decisions with sequestration looming in the near future. Kendall’s top priority in his report on acquisition reform to Sens. John McCain (R-Ariz.) and Carl Levin (D- Mich.) is the basic idea that sequestration must go.

“End the threat of sequestration,” he said at the conference. “If there is anything that is killing us today, it’s the threat of sequestration.”

The uncertainty of future budgets causes DoD to hold onto things and “hope for a miracle,” Kendall said. In the fall, the department will prepare its fiscal 2016 budget and analyze the impact of cuts that have to happen under sequestration.

Sequestration affects not only government agencies, but also industry selling its products to agencies, said Brett Lambert, executive in residence at Renaissance Strategic Advisors and former deputy assistant secretary of Defense for manufacturing and industrial base policy.

The small and medium sized companies suffer most, said David Berteau, senior vice president and director of national security program on industry and resources at the Center for Strategic and International Studies. During 2013, the top six DoD contractors only had 10 percent reductions in their revenue because of sequestration, while small, medium and large companies suffered a 19 percent reduction.

Berteau said CSIS will release a new report showing the impact of sequestration on Defense companies in the next month or so.